Wednesday, June 29, 2011

Regulation and the Fundamental Theorem of Reaction

Ever notice this cycle?

Some horrible thing about a product is reported on TV, usually a product belonging to a large multinational corporation that is made in China, or sometimes Mexico if that thing is a fruit or vegetable.

Something must be done!

A set of regulations is hastily passed, nominally by a legislature but in practice by hordes of administrators with heavy consultation by minions of the industry being regulated.

Strangely, the regulations wind up being pretty onerous for small businesses, reducing the approximation of a competitive market in the market segment being regulated. The big players love this because it creates an artificial economic 'moat' (in the Buffet/Graham sense of the word) against upstart competitors by generating an economy of scale. This economy of scale is created because the cost of compliance per widget is lower for a large corporation than a small business, giving it a competitive advantage in a decidedly non-competitive way.

None of this surprises the reactionary, as it is in keeping with the fundamental theorem of reaction. What is surprising is how frequently those on the Left drive this cycle without stopping to consider who they hurt by it (such as small organic family farms or little toy makers) and what monstrosities benefit from it. In the most egregious cases, such as the recent lead testing for toys and books regulations, the original malefactor even gets a specific exemption from the regulation in question!